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Bad jobs report a warning sign

The percentage of people in the workforce dropped to the lowest level since 1979. | AP Photo

The expiration of the payroll tax cut at the beginning of the year — which neither Democrats nor Republicans did much of anything to stop — amounts to as much as a $1,000 annual tax increase on average Americans. Studies suggest people have not really noticed it yet. But as the year goes on they probably will, and spending will likely take a hit, driving down growth by as much as 0.6 percent, according to various estimates.

Goldman Sachs estimates that’s about what the Federal Reserve is adding to growth with its easy money policies. So one part of Washington is essentially killing the stimulative efforts of another.

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TOP 5 signs we've been sequestered

And while the $85 billion in sequester spending cuts have not generated huge headlines about airport delays or tainted food, there is little question they are going to cut into growth this year, though they may not have had much to do with the bad March jobs number. The Congressional Budget Office estimates the sequester will eventually cost 750,000 jobs and reduce GDP growth by 0.6 percent.

“Washington fiscal policy, between the expiration of the payroll tax cut and the sequester, is the fundamental reason we could have another spring swoon,” said Jim O’Sullivan of High Frequency Economics. “It’s still to be determined how big a deal the sequester is. But you are going to have furloughs in addition to layoffs.”

Those furloughs and layoffs in the public sector mean less consumer spending, the engine that drives two-thirds of the economy. Wall Street estimates suggest the sequester cuts could shave up to 1 percent off GDP growth this year, which could be the difference between an economy that feels decent and one that scares the daylights out of people.

“The sequester will start to do some real damage,” said Mark Zandi, chief economist at Moody’s Analytics. “I also suspect health care reform is going to be a weight as employers nail down what their costs are going to be and work to get below that 50-employee threshold” — the level at which the law’s requirements for businesses kick in. “All these things come together and we get to midyear feeling disappointed. And, depending how bad the fiscal drag is, we could get close to zero growth, which would be very uncomfortable.”

The White House, Democrats in Congress and liberal economists heap blame for all this squarely at the feet of Republicans, saying if they would just give up their fixation on spending cuts and focus instead on doing more to stimulate the economy and create jobs the spring swoon could be avoided.

President Barack Obama visited Florida last week and chided Republicans in Congress for not supporting more stimulus spending on infrastructure. “What are we waiting for? There’s work to be done. There are workers who are ready to do it,” Obama said. “Let’s get started rebuilding America.”